This article uses data from a cohort of elderly and retired persons over the 1996-2001 period in the US to (i) determine the extent to which changes in socioeconomic or demographic characteristics, particularly age, income and education, impact the total amount that is spent on prescription drugs and (ii) to analyse the predictors of individual out-of-pocket (OOP) prescription drug outlays among the same cohort and determine whether age, race, sex, income, education, marital status and health status have an influence on these. The analysis considers the implications for elderly individuals who choose to participate in the new Medicare Part D drug benefit, labelled the Medicare Prescription Drug, Improvement, and Modernisation Act of 2003. The results highlight the necessity for the Medicare prescription drug benefit to carefully target the eldest among the elderly, who are most in need and are in danger of becoming trapped in the so-called Medicare 'doughnut hole', i.e. incur high prescription drug outlays, without adequate coverage. The study also finds evidence that women, those who are not married, middle income elderly and those in poor health, who purchase drugs more intensively, are at risk of incurring significant prescription OOP drug outlays
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